Define: Moratorium

A moratorium is a temporary suspension or delay of a particular activity or legal obligation. In a legal context, a moratorium may be imposed by a government or regulatory authority to halt certain actions or processes for a specified period. For example, a moratorium on debt payments may be declared during times of economic crisis to provide relief to individuals or businesses facing financial hardship. Similarly, a moratorium on evictions or foreclosures may be enacted to protect tenants or homeowners during times of housing instability. Moratoriums can also be applied in environmental contexts, such as a moratorium on drilling or mining activities in sensitive areas to preserve natural resources. The purpose of a moratorium is typically to provide temporary relief, allow for further study or evaluation, or create a window for negotiation or resolution of underlying issues.

A moratorium is a temporary stoppage of an activity or law until such time as the reasons that prompted the moratorium are rectified. A government, regulators, or a business may impose a moratorium.

Moratoriums are frequently enforced as a result of temporary financial difficulties. For instance, a business that has exceeded its budget may not hire new employees until the start of the following fiscal year. A moratorium can be put on an activity in legal processes, such as a debt collection process during bankruptcy proceedings.

• A moratorium is a temporary cessation of business as usual or the enforcement of a certain law or regulation.
• Moratoriums are frequently used to ease temporary financial hardship or to provide time to resolve connected difficulties.
• A moratorium is a legally imposed pause in the recovery of debt from creditors under bankruptcy law.

A moratorium is frequently, but not always, a response to a short-term crisis that affects a business’s normal operations. For example, in the early aftermath of a natural disaster such as an earthquake or flood, a government may impose an emergency embargo on some financial activity. It will be lifted once normal business operations resume.

If a business is having financial difficulties, it can halt certain activities to save money. The business may impose a hiring freeze, restrict discretionary spending, and curtail non-essential travel and training. Moratoriums of this type, which are intended to curb wasteful spending, are not intended to jeopardise a business’s ability or purpose to repay debts or cover all necessary operational expenditures. Rather than that, they are used to close a financial gap or avoid default on debt obligations. A voluntary moratorium is a tool for restoring spending to current levels of company revenue.

A moratorium is a legally obligatory pause in the power to collect debts from an individual under bankruptcy law. This time-out period protects the debtor while a recovery plan is agreed upon and implemented. This form of moratorium is common in Chapter 13 bankruptcy files where the debtor is attempting to restructure payments on existing debts.

Example

For example, in 2016, the governor of Puerto Rico issued an order restricting withdrawals from the Government Development Bank. In order to limit threats to the bank’s liquidity, this emergency embargo placed a stop on withdrawals that were not tied to bank principal or interest payments.

On the voluntary side, during the course of a natural disaster, insurance companies may announce moratoriums on issuing new policies for properties located in certain locations. When the likelihood of filing claims is unusually high, such moratoriums can help limit losses. MetLife, for example, imposed a freeze on new policy writing in various Texas counties in February 2011 owing to an exceptional wildfire epidemic.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 10th April, 2024.